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Quotation of the Day…

is from page 138 of the 5th edition (2020) of Douglas Irwin’s superb book Free Trade Under Fire (footnote deleted; link added):

One reason that Trump and many others have these views [about trade deficits] is that they believe a country is like a company. A company cannot suffer losses forever, spending more in producing goods than it earns in selling them. A company has a clear bottom line, and Trump is familiar with that world. Is the same true for a country? The answer is no. The United States will not cease to exist – or even become poorer – if the trade deficit continues.

DBx: Yes.

To use Hayek’s important distinction, a company – and also a government – is an organization. An economy, in contrast, is an order. Orders are categorically distinct from organizations. Unlike organizations, orders are not consciously created. Nor do orders have purposes or goals (although they can and do assist individuals and organizations in the pursuit of the individuals’ and the organizations’ goals). Also unlike an organization, no order has an actual balance sheet, income statement, or bottom line. Other differences: orders have no legal standing, and orders cannot be properly said to ‘do’ anything; unlike individuals, households, and businesses, orders can’t borrow, lend, spend, consume, produce, owe or be owed, or own or be owned. Orders cannot export or import. And while organizations have net worths, orders do not – and no such net worth is conjured into existence by summing the real net worths of each of the order’s components (for example, an economy’s households).

The absurd concept of the balance of trade is borne of the mistaken belief that an economy (an order) is an organization. It’s a category error. The attempt to portray orders as organizations has led, and continues to lead, to no end of confusion. And this confusion serves as spectacularly proficient fertilizer for bad trade policies.

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